Sunday, 10 June 2012

Summit job losses do not show need for government support

The announcement of 49.5 redundancies at Summit Wool Spinners in Oamaru today shows the need for government action to protect jobs in the manufacturing sector, says the Engineering, Printing and Manufacturing Union.

The company has cited a lack of orders overseas driven in part by the high exchange rate as a cause of the redundancies.

No these job losses don't show the need for any government action. For a start the government can only affect the exchange for a short time and at a large cost. Also once the government stops its interventions the exchange rate goes back to its true level and Summit has exactly the same problems all over again. For the company to remain in business the government would have to intervene in the exchange rate permanently, which it can't do. The message here is most likely that we just don't have a comparative advantage in this industry. There is also the question that if the government intervenes to keep the exchange rate "low" to protect jobs in the Summit factory how will this effect jobs in business who rely on imports? If the exchange rate is "low" imports cost more, this raises the costs of firms who utilise imports in their production and this makes these firms less viable, jobs will be lost in these industries. So while some jobs will be saved in a particular firm, jobs in other firms will be lost.

2 comments:

One thing the Government could do to save the jobs at Summit is to stop interfering in the labour market, by dropping the minimum wage. Better to have these people working with a top up through the tax system than to have them on the dole.Jeff W